U.S. spending dispute halts airport construction

WASHINGTON, July 22 (Reuters) - Airport projects across the United States will shut down this weekend and thousands of federal workers will be furloughed after Congress failed to agree to fully fund the Federal Aviation Administration.

"This is no way to run the best aviation system in the world," Transportation Secretary Ray LaHood said in a statement on Friday after the House of Representatives and the Senate finished work for the week without approving stop-gap funding.

Democrats said $2.5 billion in construction projects employing 87,000 workers in all 50 states will be put on hold during the shutdown that effectively begins on Saturday.

California, Florida, New York and Georgia stand to lose the most money. About 4,000 FAA employees who work in the airport improvement area will go on leave without pay.

Air traffic operations will not be affected but the federal government will have to forego $200 million per week in airline ticket taxes.

No airport bonds would be directly threatened by the shutdown, said Peter Murphy, an analyst at Standard & Poor's.

As Democratic and Republican lawmakers fight over the broader issue of the U.S. deficit and debt limit, differences over aviation funding kept Congress from passing a spending measure proposed to replace one that is about to expire.

The House this week approved a budget bill to fully fund the FAA through Sept. 16. The measure included riders that would cut certain air service subsidies for underserved, mainly rural areas.

The Senate would not go along with the cuts and neither side would compromise. The Senate will not meet again until Monday evening.

"It is unbelievable that after the House passed the ... extension, the Senate departed Washington and left the FAA and many of its employees behind," House Transportation Committee Chairman John Mica, a Republican, said in a statement.

Mica was behind the cuts, calling certain subsidies a waste of taxpayer funds. He said reducing the subsidy program would save $12.5 million.

Senate Finance Committee Chairman Max Baucus of Montana, a Democrat whose state would have been hit hard by the cuts, said he would not "allow rural communities to be batted around like political pawns".

Republicans are highly critical of air subsidies that exceed $1,000 per passenger in certain airports, including Ely, Nevada, and Glendive, Montana.

The House bill also targets service at Alamogordo/Holloman Air Force Base in New Mexico. The House extension would cap federal subsidies for air service to those communities, saving another $4.1 million, according the transportation committee. (Reporting by Lisa Lambert; Additional reporting by Richard Cowan; Editing by John O'Callaghan)